"Ben Verwaayen was appointed CEO by Alcatel-Lucent's Board of Directors on September 1 2008, and this takes place immediately," says an AlcaLu spokesperson. "He and Pat Russo will work together for a few weeks' transition period."

He has been regarded as an ideal candidate because of his industry experience, his performance at BT, which was transformed under his leadership, and his ties with the vendor – Verwaayen was at Lucent for more than five years before he joined BT at the end of 2001. Prior to Lucent, he was at Dutch national operator KPN Telecom NV (NYSE: KPN). (See BT Snares Lucent Exec.)

In the vendor's press release, Verwaayen stated: “Alcatel-Lucent has a lot to offer: technological excellence, leading market positions worldwide, in developed as well as emerging countries, and a strong customer focus. The company operates in a quickly changing market and therefore is evolving. I'm truly delighted to become the CEO of Alcatel-Lucent, leading a company with vast assets and great talents, while recognizing the difficulties and challenges ahead. I am committed to building significant and sustainable value for our shareholders, customers and employees.”

Shareholders, customers, and employees will all now be waiting to see just how the new CEO believes AlcaLu should "evolve" in its "quickly changing market," and whether that will mean any further job cuts or changes to the company's product portfolio or R&D roadmap.

Verwaayen isn't the only new face in the AlcaLu boardroom: The company has also named Philippe Camus as its new non-executive chairman. The 60-year-old Frenchman, who is currently a managing partner at media company Lagardère, and a partner at New York-based investment firm Evercore Partners, takes over from Serge Tchuruk on October 1.

Today's announcement kills off any hopes that former Alcatel golden boy Mike Quigley might make a triumphant return as the new CEO, a suggestion that had been rife in recent media reports. (See Quigley Talk Boosts ALU.)

It also dampens any investor hopes that the appointment of a new lead executive might bolster the vendor's share price. At 10.15am on the Paris bourse, AlcaLu's share price was down by 1.6 percent to €4.24. That's 10.5 percent better than a month ago but nearly 47 percent down from this time last year.

Destiny fulfilled?
Some in the industry believe Verwaayen has wanted to run a combined Alcatel/Lucent for many years.

According to industry sources Verwaayen was keen on a merger between the two formerly independent vendors when he was Lucent's vice chairman during 2000 and 2001.

Those sources say Verwaayen championed a tie-up with Alcatel then, and had hoped to further his cause as Lucent's CEO. But he was overlooked for that role by chairman Henry Schacht, who allegedly wasn't so keen on a merger with Alcatel at the time. Schacht instead named Pat Russo as Lucent CEO, a decision that precipitated Verwaayen's exit from the U.S. vendor. (See Lucent's Next Leader.)

Interestingly, Schacht, who retained a Lucent board seat after he stepped down as chairman in February 2003, was a member of the AlcaLu board until late July: He resigned with immediate effect on the day that Russo announced her resignation as CEO. (See Russo, Tchuruk to Leave AlcaLu.)

Now Verwaayen has the chance to show the industry that his reputation, gained at BT, as a turnaround specialist is merited, something that might prove rather tough, according to one industry analyst.

“Verwaayen has a good track record, but it’s been spun into an outstanding one largely on account of his considerable charisma," says Heavy Reading senior analyst Patrick Donegan. "He will have to excel himself if he is to make anything like the impact on Alcatel-Lucent that he made on KPN and BT.”

re: Verwaayen Takes the Helm at AlcaLu So Ben Verwaayen is already at AlcaLu's Paris HQ, helping Pat Russo to clear her desk, but how long wil it be before he can take the credit/blame for ALU's performance?

A year? Longer?

And what will he do with the CDMA business that's been dragging the numbers down? I can't help thinking the wireless status quo will prevail...

Ben Verwaayen's first morning in the job as the new chief executive of Alcatel-Lucent (ALU) on Sept. 2 provides a hint of how rapidly things are set to change at the troubled Paris-based maker of telecommunications equipment. When Verwaayen asked for business cards, he was told they would take three days. Not good enough. He demandedGÇöand gotGÇöthem in three hours.

Verwaayen, 56, recently retired as CEO of British telecom giant BT Group (BT) after leading a solid turnaround that transformed the telco into a leader in broadband, Internet Protocol (IP), and IT services. A native of the Netherlands, Verwaayen previously ran the former Dutch national phone monopoly, then known as Royal PTT and now called KPN (KPN.AS), helping it adjust to increased competition. He also served several years as the vice-chairman of Lucent before its merger with Alcatel.

Widely admired as a no-nonsense, quick-moving manager, Verwaayen won't be working alone to rescue Alcatel-Lucent. The company also announced a new chairman on Sept. 2, French business leader Philippe Camus, who is known for his political dexterity and deft touch with cross-border mergers. That skill will come in handy at Alcatel-Lucent, which has been rife with conflict between its former French and American units. Camus was a key architect of European Aeronautics Defence & Space (EAD.PA), created by a Franco-German merger in 2000, and shared the post of CEO for five years with a German counterpart, Rainer Hertrich.

Daunting ProblemsSome analysts and investors are disappointed that the board didn't tap Mike Quigley, a former Alcatel president, as chief executive. But many say that Verwaayen and Camus, with their respective experience in telecom and French business, come as close as possible to a dream team. The question is whether anyone can turn around the company. Alcatel-Lucent has been hit hard by global economic uncertainty, tough competition from the likes of Chinese telecom equipment vendor Huawei Technologies, and weakness in parts of its product line. What's more, integrating the French and American halves of the company has proven far more challenging than anticipated, resulting in management and cultural conflicts. The result has been six consecutive quarters of losses and a decline of more than 50% in the company's market capitalization since the merger.

The latest financial results, issued July 29, underscore just how tough a job the new leadership team faces. Alcatel-Lucent posted a $1.7 billion quarterly loss, including a $1.3 billion writedown on its North American wireless business inherited from Lucent. Quarterly revenues were down 5.2% year-on-year, to $6.5 billion, and the company warned that widening economic malaise in Europe could further dampen sales.

The company's dire results prompted CEO Patricia Russo and Chairman Serge Tchuruk to resign (BusinessWeek.com, 7/29/08). Tchuruk steps down Oct. 1, but Russo is still occupying her seventh-floor office at the company's headquarters on Paris' rue Bo+¬tie. Verwaayen, a former colleague of Russo's at Lucent, is camping out in a conference room during the transition, which is expected to take several weeks.

Worse Than OthersNo question, other telecom equipment makers face similar difficulties with the market, but they haven't fared as miserably as Alcatel-Lucent (BusinessWeek, 6/18/08). Overall telecom investment worldwide is forecast to rise 2.5% to 5.5% this year, while Alcatel-Lucent predicts its sales will decline by low-to-mid single digits.

Verwaayen and Camus said during a press lunch Sept. 2 that they're both going into their new jobs with eyes wide open. "We have to resolve the profitability and do whatever is necessary to make this company compete better with competitors," Camus said. One unfortunately timed event underscored the challenges ahead: On Sept. 2, Alcatel-Lucent was dropped from the Dow Jones Euro Stoxx 50 index due to the decline in its market cap. That caused the stock to drop sharply on the Paris stock exchangeGÇödespite the announcement of new managementGÇöand it ended the day down 3.6%. Shares traded in New York were off 4.69%, finishing at 5.89.

Still, Verwaayen remains positive that the problems can be fixed. "I have looked hard at the assets, and I think I can do it," Verwaayen said in an exclusive interview with BusinessWeek.com. "The problem is at the top, and you can fix that."

Goodbye, Wireless Business?Some analysts agree. Despite all the negative publicity Alcatel-Lucent has received in the past few yearsGÇöand the fact that it is "not well run today," says Richard Windsor, an analyst at Nomura SecuritiesGÇöthe company maintains world-leading positions in optics, DSL broadband, submarine cables, and CDMA-type wireless equipment. Windsor thinks Alcatel-Lucent should be able to bounce back, but it needs "fresh thinking." Given the current global economic climate, though, Alcatel-Lucent isn't likely to improve its top line before 2009, at the earliest, he notesGÇömeaning its share price may stay depressed.

To lift the company's fortunes, says analyst Thomas Langer of WestLB, Verwaayen may have to make some tough decisions and pull out of certain sectors, such as wireless, which currently accounts for a quarter of the company's sales. About half of that comes from systems conforming to the CDMA standard, a market forecast to decline 20% next year, Langer says. He is also skeptical of Alcatel-Lucent's proposed joint venture with NEC to share the research-and-development burden of fourth-generation mobile systems. Langer predicts that Alcatel will rebound, but as a smaller company focused on optics, fixed-line access, and transmission technologies.

Verwaayen's e-mail box and voicemail were crammed Sept. 2 with messages from people already giving him unsolicited advice his first day on the job. He declined to predict just when Alcatel-Lucent might return to profitability, but he outlined a broad, five-point program for turning the company around: delivering on benefits promised when the merger occurred; a greater embrace of so-called "open innovation" (an emerging management concept that aims to do away with the "not invented here" syndrome in corporate R&D); banishing the us-versus-them mentality inside Alcatel-Lucent by insisting that the company think and act as one; making executives accountable for results; and choosing the best people for positions, regardless of nationality.

Learning from NokiaThe former BT CEO said he has no plans to bring in his own team and did not call for more layoffs or an immediate corporate reorganization. He pointed out that although he quickly made changes at BT, he did not initiate a major reorg until he was four years into the job. Verwaayen also said he has no specific plans to kill off any of Alcatel's lines of business, saying only that the company will need to place increased importance on services, taking a similar approach to mobile handset giant Nokia (NOK) by becoming more of a software company. Like Nokia, Alcatel must continually tweak and improve its hardware, but it also must come up with compelling services.

Why take on what could be an extremely difficult turnaround, instead of relaxing after a long career? Verwaayen says he accepted the challenge because he was bored after three months of sitting around a swimming pool following his departure from BT. His wife guessed correctly, he said, when she observed that "I feel better in the office," Verwaayen said.

Indeed, Verwaayen said he had received lots of job offers over the past three months, including working for media companies and a variety of public-private initiatives. But he denied press reports that he initially turned down the offer to become Alcatel-Lucent's chief executive. "I never said no," he said, explaining instead that he gradually warmed to the idea in discussions with Camus during August.

"The most important thing for me was the choice of Philippe Camus" as chairman, Verwaayen says. "He understands the French environment, but he also really knows global business."

New Yorker at HeartThat experience was evident in Camus' tenure at EADS. Despite initial skepticism about their unusual power-sharing arrangement, Camus and Rainer Hertrich formed a smooth partnershipGÇöonly to have it unravel after former Airbus boss No+½l Forgeard used his connections to Jacques Chirac, who was France's president at the time, to oust Camus in 2005. In contrast to the easygoing Camus, Forgeard alienated the company's German leadership, sparking a management crisis after Airbus acknowledged delays on the A380 aircraft that cost the company billions. The two-headed management structure finally was scrapped last year (BusinessWeek.com, 7/16/07).

Compared with most French corporate executives, Camus has unusually strong ties to the U.S. He is a partner in Evercore Partners (EVR), a New York investment and advisory firm, and is co-managing partner of France's Groupe Lagard+¿re (LAGA.PA), which has extensive U.S. media holdings, including such magazines as Elle and Road & Track. He said Sept. 2 that he will continue to live in New York and retain those posts while serving as Alcatel-Lucent's nonexecutive chairman.

Verwaayen said he and Camus had a series of "interesting conversations" over the past few weeks. "We talked about governance roles and responsibilities," he says. The two see eye-to-eye on the company's future direction and share a sense of humor, he said.

Nevertheless, it was only last Friday, Aug. 29, that Verwaayen finally decided to take the job. He made up his mind at his French vacation home in Luberon, near France's Rh+¦ne Valley, prior to leaving for a weekend in Scotland with BT's new chief executive, Ian Livingston, to watch a soccer match. Verwaayen flew back to France on Sunday to "to pick up a clean shirt" from his vacation home. He met with Alcatel-Lucent's board in Paris on Sept. 1. Until then, he said, he had visited the company's headquarters only onceGÇöas a member of the Lucent team that helped negotiate the mergerGÇöand didn't step foot in the building again until becoming CEO.

As Alcatel-Lucent's chief executive, Verwaayen will receive a yearly salary of Gé¼1.2 million ($1.75 million) plus substantial shares in the company and a target annual bonus of 150% of fixed salary. The payout can range from 0% to 200% of that target, based on yearly agreed performance criteria. But in a move likely to please shareholders, Verwaayen has agreed to no severance pay. "If they want to get rid of me, they can do it in a heartbeat," he said. "I am here to do a job, not to make a career." And if things don't work out? "I've still got my swimming suit," he said.

Schenker is a BusinessWeek correspondent in Paris. With reporting from Paris bureau chief Carol Matlack

re: Verwaayen Takes the Helm at AlcaLu From the quaterly statement on 7/29...Carrier Operating Segment

For the second quarter 2008, revenues for the Carrier operating segment were Euro 2,811 million compared to Euro 3,104 million in the year-ago quarter, a 9.4% decrease at current exchange rate and a 3% decrease at constant rate. Adjusted2 operating1 profit was Euro 11 million, an operating margin of 0.4% compared to a loss of Euro (73) million or a negative operating margin of (2.3%) in the year ago period.

Key highlights:

- Fixed access revenue decreased at a double-digit rate, due to the ongoing decline in new subscribers to copper-based broadband access. Alcatel-Lucent shipped 7.7 million xDSL ports in the quarter, down 20% from the demanding basis of the year-ago quarter but up 16% sequentially. The year-over-year decline in xDSL revenue was only partially compensated by the very strong growth in FTTx revenue. Dell'Oro confirmed Alcatel-Lucent as the clear leader in the GPON-based FTTH segment, with a four-quarter rolling market share of 48% in the first quarter 2008.

- In data networking, growth in edge routing was softer this quarter than in the first one, which is essentially attributable to a demanding year-over-year comparison as well as the timing of deliveries at certain large customers. The ATM switching business continued on its structural decline path in the second quarter 2008, albeit at a more moderate rate than in the first quarter.

- In mobile networks, our GSM business grew at a double-digit rate in the second quarter, which was driven by network expansions in China, India, the Middle East and Africa. W-CDMA revenue grew very strongly, benefiting from the ramp-up in revenues at several key clients, including AT&T Mobility, Bouygues and SFR and sustained growth at other accounts such as Orange, SKT and KTF. CDMA revenue declined sharply year-over-year, hurt by the significant reduction in the capital expenditure of a key customer in North-America.

- Our core switching activities contracted at a moderate rate in the second quarter, as the ongoing decline in legacy TDM voice was almost entirely offset by the strong, double-digit growth in Fixed and mobile NGN. It must be noted that our NGN activity is now close in size to our TDM activity.

- Our applications activities grew in excess of twenty percent the second quarter, a sharp contrast to the moderate growth rate achieved in the first quarter, due to a pick-up in revenues from Messaging applications and a stabilisation in our legacy IN (Intelligent Networks) business.

Enterprise Operating Segment

For the second quarter 2008, revenues for the Enterprise operating segment were Euro 386 million compared to Euro 376 million in the year-ago quarter, an increase of 2.7% at current exchange rate and of 7% at constant rate. Adjusted2 operating income1 was Euro 29 million, or 7.4% of revenues compared to Euro 23 million or 6.1% in the year ago quarter.

Key Highlights:

- Enterprise Solutions grew in the high single-digit range, with a particularly strong performance in data networking but also good growth in IP Telephony. The division also showed progress in Security solutions, driven by recent successes in firewalls and additional orders for its Laptop Guardian product. From a geographic standpoint, growth remained solid in North America and was strong in APAC.

- Genesys, the contact centre software activity, enjoyed another quarter of double-digit growth, driven by a strong performance in Europe and good resilience in North America.

- The adjusted operating margin of the Enterprise operating segment increased both year-over-year and on a sequential basis. This is attributable for the most part to higher volumes, a positive shift in the product and geographic mix and solid progress in the product costs reduction programs.

Services Operating Segment

For the second quarter 2008, revenues for the Services operating segment were Euro 818 million compared to Euro 750 million in the year-ago quarter, an increase of 9.1% at current exchange rate and of 16% at constant rate. Adjusted2 operating income1 was Euro 71 million or 8.6% of revenues compared to Euro 29 million or 3.9% of revenues in the year ago quarter.

Key Highlights:

- Network operations grew very strongly, as a result of some of the very large contracts won in 2007 and in 2008. Alcatel-Lucent announced two large managed services contracts in the second quarter, including Reliance Communications in India and Sunrise in Switzerland.

- Network integration also enjoyed another quarter of very strong growth which was driven by several large and complex projects for the design, integration and optimisation of networks in Asia and North America.

- Growth in professional services - which includes the integration of software applications either from Alcatel-Lucent or third parties - was more moderate this quarter than in the first one, which is mainly due to a much more demanding comparison basis. For the first half, however, this business grew in the high single-digit range.

- Finally, Maintenance returned to growth this quarter, due to sustained growth in multivendor maintenance combined with an unusually strong quarter in legacy maintenance.

- The segment enjoyed a material improvement in profitability year-over-year, due to a very favourable mix, a material increase in the gross margin in Network operations, Network integration and Professional services and an overall better absorption of fixed costs.

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